"Could this Trump-friendly stock flatten the competition in 2017?
By The Motley Fool Nov 25, 2016

With a market cap of only £128m, it's not surprising if many investors haven't heard of Somero Enterprises(LSE: SOM). But thanks to Donald Trump's US election win and his commitment to boosting infrastructure, I think this company could be receiving a lot more attention over the coming months and years. Let me explain why.

Amazing returns

On initial inspection, Somero hardly sets the pulse racing. It manufactures laser-guided equipment used for spreading and levelling volumes of concrete for commercial flooring and other horizontal surfaces. So far, so dull.

Nevertheless, a quick look at the company's share price performance over the past few years should make a lot of investors sit up and take notice. Back in 2011, Somero's shares could be picked up for just 10p. Today, thanks to sizeable increases in revenue, net profits multiplying from $1m to $12m since 2012 and a notable jump since Trump's victory, the very same shares are priced at just over 226p each. Think about that. If you'd had the foresight (or fortune) to invest £1,000 in the company a few years ago, you'd now be looking at a pot of more than £22,000. That's quite a return.

But there are other attractions to Somero besides its rocketing share price. Returns on capital and operating margins have exploded over the past few years. Although not a share most would choose to invest in for income, the dividend has also been rising by double figures and an easily-covered payout of just over 3% is expected for 2017. The company has $12m in cash on its books and no net debt. Any other positives? You bet. On a forward price-to-earnings (P/E) of just below 11 for 2017, Somero's shares still look cheap to me.

As a company - albeit a cyclical one - I think Somero has a lot to offer investors. But how does it compare to other companies involved in infrastructure, such as £1.35bn cap property, residential, construction and services company Kier Group(LSE: KIE)?

Brexit-related risk

On a forecast P/E of 13, shares in Kier look reasonably priced. There's a chunky dividend yield of 4.8% to keep income investors interested and net profits look set to be substantially higher over the next two years (£105m and £117m in 2017 and 2018 respectively). At face value, Kier looks a pretty inviting investment.

Unfortunately, there's one big elephant in the room that I think could make the Sandy-based company's shares substantially more volatile than those of Somero Enterprises. Yes, you've guessed it: Brexit. In times of economic uncertainty, large infrastructure projects can be shelved or delayed, ultimately hurting Kier's bottom line. Given that the majority of its revenue comes from the US, Somero isn't quite as exposed to the consequences of our EU departure. Indeed, in its last set of results in September, CEO Jack Conney made reference to the latter's strong performance in its North American, European and Chinese markets. It's this geographical diversification that, in my opinion, will see Somero outperform stocks like Kier for the foreseeable future.

So long as you're willing to take on extra risk for the possibility of higher returns, I think Somero Enterprises warrants serious attention. I fully expect to see the company featuring on many watchlists before too long."

"Will Lough, assistant manager on the River and Mercantile UK Long-Term Recovery GB00B614J053) fund and director of research, makes a similar case for Somero (SOM:AIM). The group specialises in the automatic levelling of concrete and has a significant business in the US. As such, it should be a beneficiary of any infrastructure boom as governments increasingly prioritise fiscal spending over monetary policy to boost their economies.

He adds: 'The group also sells a lot to groups building up warehouses, such as Amazon (AMZN:NDQ), who need their concrete completely flat to ensure that machinery can manoeuvre properly. Somero can benefit from growth in that market as well.'"

Somero Enterprises Inc (SOM), which won the international AIM company of the year award for 2016, is an example of a US domiciled company that has performed strongly this year, and there could be additional opportunities from planned increases in US infrastructure spending.

The concrete levelling equipment manufacturer will not benefit from the investment in roads and bridges, but there is talk of airport investment and there could be other spending on buildings that would require construction firms to buy more machines.

North America is already a strong market, contributing three-quarters of revenues, and it is possible that some of the positive effects could be offset by the geographical spread of the rest of the business.

This geographical diversification is a positive because not all countries are growing at any one time. China is a growing market, but if a Trump presidency tears up trade agreements, then that could hit non-US sales."

SOM are still barely on a double-digit P/E based on Finncap's 18.33p EPS forecast for the coming year (which may be increased substantially following the dollar's strength against the pound).

Given what we can assume is now reasonable certainty for the next 4 years about increased infrastructure spending in the core USA market - plus the likelihood of further inroads in the vast markets of China and India - it might now be a very interesting ride going forward for SOM.

Thanks Gretel, your posts are useful and it was reading again your posting of the Investors Champion piece (1 Nov) that encouraged me to add yesterday. I guess there may be a risk of protectionism damaging overseas sales but with 75% of annual revenue coming from North America the Trump affect should overall be very positive.

First invested here last month on back of numerous recommendations and if it ends up doing as well as Ashtead (first invested in 2011) I'll be very happy!

"With the pound struggling at a near three decade low against the US dollar we thought it was appropriate to cast a glance at a few fast growing" US businesses with lots of lovely US dollar earnings that have found their way across the water onto AIM."

"Somero Enterprises Inc. (AIM:SOM) has its HQ in Fort Myers, Florida and manufactures laser-guided machinery used in horizontal concrete placement, to âadvance the productivity, concrete flatness and efficiency of the jobsiteâ&#65533;. We last covered the Group in our Blog on 4th March 2016 (âWhere is the value in small capsâ) since when the shares have climbed modestly higher to a current 170p having been as high as 188p in September 2016. Key end markets for the Groupâs products are distribution warehouses which, due to automation and very high racking, demand perfectly flat concrete surfaces.

Much has been made of the potential growth in China and Europe for its products but, as we commented previously and reflected in the most recent interim results, for us this remains largely a play on the US economy, for the next few years at least.

Interim results for the six months ending June 30, 2016 saw revenue rise 18% to US$39.7m, pre-tax profit up 26% to US$ 10.4m and earnings per share up 33.3% to 12 cents. There are lots of horrible EBITDA references in the numbers but we like to focus on simple cash flow which rarely disappoints with this business with net cash provided by operating activities a commendable US$5.7m in the 6 months and free cash flow US$1.95m after significant investment in their new Fort Myers facility. Net cash at June 30, 2016 was US$ 11.1m.

North American sales represented 75% of the total at US$29.8m having increased 24% in the 6 months. Having disappointed previously, sales to China rose 15% but remain modest at US$3.8m, however this is evidently plenty to go for there.

Management commented how the positive trading momentum in North America has continued into 2nd half of 2016 reflecting a healthy non-residential construction market in the United States driven by demand for new products, replacement equipment, fleet additions, and technology upgrades. The ongoing construction growth and project backlogs their customers are experiencing point to continued solid performance in the North American market for the remainder of 2016.

With most of the big capital expenditure out of the way, free cash should start to flow gloriously again over the next few years. Free cash flow averaged US$9.6m for the 3 years to December 2015 and by our reckoning could be well above US$13m per annum going forward, equivalent to approximately Â£10.6m (fx 1.22). At the current market capitalisation of Â£96m thatâs a free cash flow yield of approx. 11%. It will be interesting to see how they choose to deploy those lovely valuable US dollars!

We appreciate the cyclical nature of the sector but this little business has weathered plenty of storms before and is a true leader in its niche sector."

I notice we have had some healthy trade volumes this last few days with some significant volume individual transactions.
I wonder whether this might relate to the fact that Somero's market cap is now around £100 million, perhaps a point at which it becomes large enough to be held by a greater number of funds?
Holding on tight.
SM

'This week's interim results for Somero Enterprises (SOM) feature the sort of numbers investors dream about. As prefaced in a July trading update, almost every key measure of financial health was up in the first half of 2016, as the specialist in laser-guided concrete levelling equipment benefited from a surge in demand for its smaller and medium-sized product line and excellent conditions in its core North American market, which increased its share of total sales from 68 to 75 per cent.

The region's 24 per cent sales growth can be partly explained by what chief executive Jack Cooney described as a "tremendous build-up in pent-up demand". Mr Cooney also told us that while the growth profile was not unusual, demand remains "very, very good". This is despite a decline in sales of pricier large line machines from $13.7m (£10.2m) to $11.1m year on year, although the larger 23 per cent drop in units sold suggests Somero did not give away much ground on pricing.
It is this sometimes lumpy order profile that means July's earnings forecast upgrade for the year is still likely to be cautious. A delay in three large line machines from one period to the next can have a huge hit on reported earnings, and also explains why sales in some of the company's smaller markets - including Korea and Latin America - declined dramatically. These drops were offset by strong performances in Europe, Australia and China, where combined sales were up by a quarter, the latter partly supported by a long-term financing programme, which accounts for just over a third of sales.
Although the timing of tax payments and an increase in working capital caused operating cash flow to fall a fifth to $5.8m, management found sufficient headroom to increase the interim dividend by nearly a third to 2.5¢ a share. As management is keen to balance the weighting of shareholder returns, investors should expect a smaller increase in the final dividend.
FinnCap expects full-year adjusted pre-tax profit of $20.3m and a marginally increased EPS of 22.7¢, against $17.6m and 23.3¢ in 2015.

Somero holds a decent cash pile, comes with a solid yield, well-covered dividend, and yet remains priced at 10 times this year's forecast earnings, dropping to a PE of nine in 2017. With management reporting a continuation in the strong North American sales momentum, we see little reason for changing our original buy recommendation (152p, 10 March 2016). Buy.'

OUR POSITIVE CALL on US specialist machinery manufacturer Somero Enterprises (SOM:AIM) continues to pay off as it delivers a better than expected 32% increase in the dividend alongside interim results (6 Sep).

The numbers show a 26% increase in pre-tax profit to $10.4 million with robust
demand from the US (its main market), Europe and China. As a reminder Somero manufactures patented laser-guided equipment which automates the spreading and levelling of concrete for commercial flooring.

As such it can benefit from the requirement for the almost perfectly flat concrete floors required in online retailers¡¦ warehousing facilities.

Sales growth has been driven by new product lines ¡V mid-line and small-line machines and 3D profiler systems which support slope and elevation changes for the likes of service ramps and loading dock areas.

House broker FinnCap comments:
¡¥The results place the group comfortably on track to achieve current forecasts,
recently upgraded in July, with strong US trading conditions providing good momentum for the second half.¡¦

Based on its forecasts the company trades on an undemanding 2017 price to earnings ratio of 9.2 times.

SHARES SAYS: àá
We see no reason to shift from our positive stance. FinnCap has a price target of 205p."

Aim-traded shares in Somero Enterprises (SOM:172p), a Florida-headquartered company that specialises in the design, assembly and sale of patented, laser-guided concrete levelling equipment for commercial floors, appear to have completed a five month sideways consolidation following a break-out above the key 170p resistance level yesterday.

Its fully warranted as a bumper set of interim results and a positive trading outlook, suggests the company is well on course to deliver a 15 per cent hike in full-year adjusted pre-tax profits to US$20.3m on revenues up 9 per cent to US$76.5m as analyst David Buxton at brokerage finnCap predicts. More than half of that full-year profit estimate was delivered in the seasonally stronger first half when both underlying pre-tax profits and EPS surged by 30 per cent to US$10.8m and 13 cents, respectively.

Trading in the US, a region accounting for 75 per cent of Someros first half revenues of US$29.8m, remains robust, buoyed by new product launches and a healthy non-residential construction market underpinned by strong demand for replacement equipment, technology upgrades, and fleet additions. Sales in North America increased by a quarter in the first half and order backlog there supports further growth for the rest of the year, and well beyond. Trading activity levels in Europe, China and Australia, countries accounting for a combined 19 per cent of Someros sales, all posted double digit growth too.

Importantly, the company remains highly cash generative and reported operating cash inflow of US$5.8m after working capital movements needed to support the higher levels of business activity. So, after paying out $3.8m for the final costs of a new 14,000 sq ft head office in Fort Myers, Florida, and US$2.8m on dividends, Somero ended the half year with net funds of $11.1m, a sum worth 15p at current exchange rates. Mr Buxton is looking for a 20 per cent year-on-year increase in Someros closing year-end net cash balance to about $15.2m. This means that after stripping out cash the shares are priced on a modest 9 times likely post-tax earnings and offer a 3.5 per cent prospective dividend yield, assuming the payout is hiked by 10 per cent to 7.6 cents as analysts forecast. A cash profit to enterprise value ratio of 5 times is hardly punchy either.

So, having initiated coverage on the shares at 140p ('On solid foundations', 22 Apr 2015), and reiterated that advice at 167p ahead of this weeks results (Business as usual, 18 Jul 2016), I am very comfortable reiterating that advice. In fact, I have raised my target price from 195p to 200p. Buy.

"Concrete evidence that Somero is a good bet - Private Punter
By Cambridge News | Posted: September 06, 2016

Last September I highlighted the potential upside on offer for would be investors of Somero Enterprises.

Since that article, the company which designs and produces automated equipment for the leveling of large volumes of concrete has both demonstrated and delivered ongoing progress, as revealed by its latest set of Interim results which were released earlier this morning.

The shares have responded positively on the back of that news, moving up to a more healthier £1.70p per share giving the business a current market capitalisation of £93m.

Having earlier in the summer delivered a positive trading update to the market, Somero reinforced that confident tone, which was marked by solid turnover growth and a welcome expansion on margins.

A combination of new products feeding through the business alongside positive underlying trading across key markets should provide investors with confidence moving forward, where the company anticipates delivering a full year result in line with the market expectations.

In terms of numbers, revenue increased overall by 12% to $40m although its key North American market which represents close to 30% of revenue by territory saw very strong sales growth being achieved.

China, a potentially massive opportunity and market which at present accounts for just short of 4% of Somero's sales also demonstrated a positive performance which should equally bode well.

Importantly, the balance sheet looks to be in decent shape with a net cash position as of June at $11.1m which follows a period of investment and expansion.

The interim dividend was also markedly increased by 32% to 2.5c per share which should result in a total payment for the year of 7.6c against last years 6.9c.

Brokers Canaccord and FinCap both cover the stock with the former placing a £2.00p target price on the shares, whilst the latter opts for a slightly higher £2.05p number.

Given that the company has already delivered adjusted Eps of 12.7c in the first half, then the 22.7c (17.1p)earmarked by FinnCap would appear to be a comfortable target, particularly in light of the positive tone emerging from the company.

That puts the stock on a forward PER of 10 at today's price, falling to 9 next year, based on consensus forecasts for adjusted pre-tax profits of £22.5m.

Speaking with CEO Jack Cooney alongside CFO John Yuncza this afternoon it is clear there is plenty of optimism across the business as they expanded on a number of points for me.

Commenting on the The US, Cooney said, It's very nicely placed with a constant demand booked up to a year ahead where a number of new entrants are coming into the market".

Going on, Cooney added that following the last recession there was a considerable pent up demand that has provided the company with a good floor on which to build and is continuing to provide positive momentum.

China, although an as yet relatively small market in percentage terms nevertheless features prominently for the company in terms of ongoing growth potential, the directors sounding a note of cautious optimism.

We put in place a long-term finance programme to support growth in China which has produced positive results" says Cooney, Whilst Yuncza points out that the creation of a lower cost machine specifically for the region targeting consistent production levels is bringing more customers on board and where local assembly being used is resulting in reduced costs and increased competitiveness.

In the past, China had been earmarked for generating a target figure of $20m in revenue for Somero, but having seemingly encountered a set back or two, perhaps understandably the CEO would not be dra

Shares in equipment firm Somero Enterprises have risen by 40% so far this year. The firms operating profit rose by 24% to $10.3m during the first half, lifting adjusted earnings by 30% to $0.13 per share.

Somero makes equipment thats used to produce perfectly flat concrete floors for warehouses and distribution centres. A flat floor is essential for the very high racking thats used in modern big box warehouses.

Someros growth is heavily linked to the construction market, principally in the US, where the business is based. Sales in North America rose by 24% to $29.8m during the first half, accounting for 75% of the groups total sales.

Somero also operates in a number of other territories, but the companys big hope for long-term growth is China. Flat floors of the kind produced by Somero equipment are relatively new in China, and the groups market share is low. The potential for expansion into the Chinese market is significant, in my opinion.

Somero has no debt and net cash of $11m. The shares trade on 9 times forecast earnings and offer a well-covered forward dividend yield of about 3.6%.

I believe that Somero remains a buy, as long as investors keep a close eye on the health of the US property market."

Thanks for all the posts following the issue of the interim result this am,

I find it quite remarkable that the Somero share price has not responded more positively to the very impressive figures the Company consistently reports. A pe ratio of well less than 10 times 2016 projected earnings with historic profit growth at more than 20% per annum makes this a very undervalued stock. The dividend payout has grown consistently, whilst the Company has been able to maintain a strong cash balance as a result of continued increased cash generation. Furthermore if one is a UK resident whose financial affairs are sterling based, the weakness of sterling in enhancing the value of the dollar based dividend payments

Perhaps because the Company is in the construction industry it is valued in the same way and is expected suffer from cyclical downturns. However Somero commands a special niche of meeting the needs of Companies who are required to provide flat floors for their customers. This niche seems not big enough to attract competition and Somero continue to build their competitive advantage to a point where they appear able to increase prices of their kit, whilst still maintaining a healthy and growing order book.

My only complaint about holding stock in this Company is that it remains undervalued!.

"Valuation - broker consensus is 25 US cents for EPS this year, or 18.7p.

So at 169p per share, the PER is only 9.0 for this year.

That seems a remarkably pessimistic valuation.

Balance sheet - this is in terrific shape, with a very strong working capital position - the current ratio is excellent, at 3.27 - for me, anything over 1.5 is strong.

There is $12.1m in cash sitting on the balance sheet, less a small mortgage of about $1m.

So the company is in a smashing position overall.

My opinion - this is a core long-term holding of mine, so today's results confirm my positive view of the company, and a very low valuation.

I think the market was traumatised by Somero lurching into losses in the GFC in 2008. But so did loads of companies. The entire banking system collapsed, for goodness sake. Personally I think it's extremely unlikely that such a severe downturn is likely next time we have a recession. Plus SOM is now in very much stronger financial shape than back then in 2008, so it should be able to withstand anything the economy can throw at it.

Essentially this share is a bet on the US economy. If you think it's going into recession, then SOM shares are probably best avoided. If you don't (and you turn out to be right), then this share could be a bargain.

Overall, I really like it. This company is the global specialist in a niche market, and given that concrete sets in about an hour, then support & service will always count for a great deal in this sector. Am tempted to buy more actually."

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